| September 2007 Newsletter |
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PO Box 319
Toongabbie NSW 2146
Tel: 1300 66 12 11
Mob: 0404 037 663
Fax: 02 8214 6592
Email: admin@powerport.com.au
Web: www.mortgageworldaustralia.com.au
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Hello,
Welcome to our latest newsletter.
In this issue we discuss how buying properties in other parts of Australia can appear more difficult. We are happy to help you as there may be opportunities you havent considered.
We also recognise there are different ways of investing in property. Our article on Property Trusts gives a brief explanation of how these work.
Our final article on Offset continues to provide some education on this feature which is of benefit to some clients.
We hope you enjoy the newsletter. Please pass it on to anyone you know who may be interested, or reviewing their finance options. Receiving referrals from existing clients and contacts is a very satisfying part of my role in helping people.
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| Patrick O'Brien |
| Mortgage Broker |
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1. Here to help you
2. Looking to buy an interstate property
3. Investing in property trusts
4. What is offset?
| With more financial transactions being available on line all the time, and with a host of lenders available every time you want to borrow, what is the value of maintaining a long term relationship with your mortgage broker? |
The best reason may be the very fact that there is so much choice and so many products available. Assessment of them all can become a minefield - an interest rate that appears low may not be so attractive when other terms of the loan are considered.
A friend in the business - a professional who knows the ropes - is much easier to approach for assistance than someone you don't know.
There are many other funding needs beyond residential or investment property purchases. These include buying a car for personal or business use, rationalising credit cards and funding a business. If each funding has to be negotiated separately with a different person each time, there is huge room for general financial confusion.
As your broker we are in a position to help you each time a new funding need arises. With statistics showing the average mortgage lasts less than seven years, your future financing needs may come sooner rather than later. If you have a current funding need please discuss it with us.
| Looking to buy an interstate property |
| For most home buyers and property investors, their own state, city or region is the logical place where they make their first purchase. However, after owning a home or investment property for a period of time, many clients become aware of appealing property investments in other cities or states of Australia. |
It is common for the media to comment that the property market in one state is in a period of flatness, while in another, the property market is taking off for a boom. In recent years, the property situation in Sydney and Perth have been reported in this way. Many Sydney suburbs have been regarded as being flat, while almost any property in Perth has been regarded as being a candidate for boom conditions.
Clients are sometimes challenged by the prospect of living in one state but purchasing an investment property in another. It is true that under State laws there may be variations in certain aspects of the legal ownership of property. These variations may include things like the rate at which stamp duty is paid, the existence or nonexistence of land tax and various other state rules but they do not apply to the funding package.
The question arises, 'Is there any barrier to using my own broker to purchase a property in another state?' we would like to assure you that, as far as our role as a mortgage broker is concerned, we are more than happy to discuss your options with you. All of the financial institutions with which we hold agreements are equally capable of mortgage lending for a property purchase in any State or Territory of Australia.
Even credit unions, which were once limited to operations within a particular state are no longer restricted in this way. WA and ACT do have particular regulations for Brokers. These however do not prevent people from other states buying property in these states.
Many people do decide to diversify their property investment portfolio by buying in a number of different states and cities. If you have decided to diversify in the same way we are well placed to help you with the finance for your interstate property portfolio. Please call should you need any further information about this.
The challenge of transforming a tiny space - overlooked backyard, a balcony, a miniature front garden, or a narrow passageway - into a beautiful garden would daunt even the most experienced gardener. Thomasina Tarling, a specialist in creating minute gardens concentrates on spaces no more than seven metres in any direction. She explains how to create visual interest through changes of level and eye-catching focal points plus lightening dark, oppressive walls with colourful paint. Thomasina also suggests an array of visual illusions to make the most of a small space.
Truly Tiny Gardens by Thomasina Tarling. Publisher Conran Octopus
| Investing in property trusts |
| Have you thought of the role we can play in borrowing money to invest in a property trust? |
Without wishing to actually advise you on whether a property trust is right for you, it is a fact that this form of investment appeals to some but not to others. Some investors are turned off by the fact that investment in a property trust does not result in ownership of an individual building which can be touched and felt. It results in shared ownership of a portfolio of properties together with other investors.
But some people are equally turned on by the prospect of not having the responsibility of personally owning a property and the risks of bad tenants, rent droughts and management worries.
A property trust also allows the investor to buy into certain classes of property - such as prime commercial property.
Property trust investors receive an income distribution from the rental flow generated by the properties. The property trust investor may participate in a capital gain if the properties in the portfolio lift in value.
Where the income from the trust is assessable income, the interest payments on your borrowings will be tax deductible in the same way as the interest paid on borrowings for the purchase of an individual investment property.
Borrowing for investment in a property trust may take place in a similar way as borrowing for an investment property. That is, a portion of the loan can be secured by a mortgage against your existing property and the lender takes security over your investment units in the trust.
Investors who may not wish to borrow the large amounts of money required to fund an investment property may find it appealing to borrow smaller amounts of money to invest in a property trust.
Earlier in this newsletter we touched on the value we can bring to a long term financial relationship due to the fact that people's borrowing needs are many and varied. Borrowing to invest in a property trust is certainly one of these many and varied options.
If you are one of those who has decided to invest in a property trust with geared borrowings, please discuss the funding options with us.
The total property market in Australia for both listed and unlisted property trusts is around $356 billion. This is in addition to the value of all owner occupied homes, privately owned investment properties plus properties owned by corporations or government.
Melbourne research firm Property Investment Research estimates the value of listed property trusts at around $176.6 billion. The value of assets held in unlisted property trusts is between $165.5 billion and $184.4 billion.
So the market size of this sector is significant. Asset classes held by these property trusts do not typically include residential property. Instead, they are specialised into classes such as office buildings, industrial estates, retail shopping centres, entertainment precincts and international property.
| You may have heard the term 'offset' or 'offset account' but do you know what it means? |
An offset account allows a home owner or investment property owner to place an amount of money on deposit with the lender. Instead of receiving interest on the deposit as would be usual, the interest is offset against the interest accruing on the mortgage.
Let's take a simple example. You become a beneficiary of a will and gain $100,000 as a cash amount. You decide that you do not want to pay that money into your loan account as a capital reduction because you have it earmarked for another purpose later on. You may simply want to keep it as a future reserve.
If you establish an offset account with your mortgage lender, and place that $100,000 on deposit, the lender will waive the interest due on the first $100,000 of your mortgage loan. Various conditions and terms apply which we can explain. This means that a much higher proportion of your normal monthly repayments will go to the repayment of principal rather than interest. Consequently your mortgage is reducing faster.
There are a number of other benefits to using this financial tool. There are also conditions, for example it must be your own money in the offset account.
At the start of a loan contract, buyers are usually looking for every dollar they can find to establish their own equity, limit their total borrowing and ensure they have sufficient cash flow to meet repayments. The benefits of offset do not usually come into play at this stage because an offset account requires that you have excess liquidity.
The concept of offset usually becomes relevant at a later stage when the loan has been running for a while and when the borrower's financial circumstances improve.
If you would like to learn about how an offset account works, and about how it could be organised in your case, please give us a call.
| Mortgage & Finance Association of Australia |
Mortgage World Australia is a full member of the MFAA. As a member we must adhere to an Industry Code of Practice, which requires professionalism, ethical behaviour, transparency and a commitment to you, the borrower.
This helps to ensure that your best interests are at heart whenever we make a finance recommendation.
- Bankwest have brought back their Rate Tracker Home Loan which offers a 0.90% p.a. discount off the average standard variable rate of the big 4 banks for the first 3 years of the loan. There is also no early repayment penalty on this loan which means you can refinance after 3 years without being charged a hefty exit fees.
- As of Monday 13th July RAMS are offering a FlexiFix product where up to a maximum of 50% of the loan amount can be fixed for 2 years at 4.99% p.a. rolling over to the Smartway Variable rate after 2 years. Variable portion can only be taken as a Smartway Variable loan which currently offers an interest rate of 5.49% p.a.
- St.George are offering a 0.15% p.a. discount off their fixed rate home loans if taken under their Advantage Package. Westpac are offering a 0.20% p.a. discount off their fixed rates under their Premier Advantage Package.
- Although most lenders are no longer offering cheap low doc interest rates RAMS are still very competitive in this market.
- Go into the draw to win $10,000 in Cold Hard Cash by either booking an appointment with us, using our services to take out a home loan or by referring a friend. Competition ends on 31st July 2009.
Disclaimer: This newsletter is intended to provide general news and information only. Readers should rely on their own enquiries before making any decisions regarding their own interests. Please do not rely on any part of this newsletter as a substitute for specific legal or financial advice. All material is copyright 2010.
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